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Be a smart financial consumer today

Simple tips to help you manage your finances better

PIDM MoneySmart 123 aims to enhance financial consumer awareness of the various financial products and service providers, the risks associated with each of the products and also their rights as a financial consumer. Be a smart financial consumer today with PIDM MoneySmart 123. Here’s how:

Step 1: Know Your Financial Products

Before placing your funds in any financial product you should know the answers to these most basic questions:

A. What type of product is it?

There are many different financial products available today that can be confusing for consumers. It is therefore important to know and understand the key financial products you may need throughout your life – including bank deposits, insurance or takaful coverage, retirement savings plans and basic investments like stocks and shares, bonds and unit trust funds.

You should first understand what type of financial product you are being offered

1. Always ask for detailed information about the financial product before you place your money.

2. Do your research and read through the product information so that you are in a better position to make an informed decision. If it is an investment product, be aware that investments always have some degree of risk and it is important to understand these risks before investing.

3. If in doubt, seek clarification or professional advice, or avoid financial products that you do not understand.

Find out if the product is eligible for financial consumer protection

PIDM is the Government agency that provides automatic protection to depositors and owners of takaful or insurance policies. Deposit products offered by PIDM member banks and takaful or insurance benefits provided by PIDM insurer members are eligible for protection by PIDM in the event a member bank or insurer member is declared bankrupt . You can find out more about PIDM’s protection here.

B. Who is my financial service provider?

Licensed and authorised provider

You should find out if the financial product or service being offered by a financial institution or financial adviser/planner is licensed by the appropriate regulatory authority. Having a licence usually means that the financial service provider must meet a set of basic standards and are competent to carry out the financial services offered. As such, it is advisable that you only place your funds with licensed or authorised entities and individuals.

PIDM member institutions

Regulatory authorities such as Bank Negara Malaysia (www.bnm.gov.my) and the Securities Commission (www.sc.com.my) publish lists of licensed financial institutions on their websites and are a good source to confirm if your service provider is licensed or authorised to provide the financial product and advice that you are being offered.

Find out also if your financial service providers are PIDM member institutions to know if your deposit products or takaful and insurance benefits are eligible for protection. PIDM is the Government agency that administers the Deposit Insurance System and the Takaful and Insurance Benefits Protection System in Malaysia. For the list of PIDM member banks click here; for PIDM insurer member click here.

Look out for this membership sign to find out if your bank or takaful/insurance company is member of PIDM

Step 2: Know Your Financial Rights

There are some important tips you should keep in mind when making financial decisions or considering an investment product.

A. Be Sure of Your Financial Goals and Risk Tolerance

Financial goals

It is always advisable to have a clear idea about your personal financial needs and what you are trying to achieve in planning your finances. Start by setting your financial goals and the timeframe when you may need to use your savings or realise your investments.

Risk tolerance

Then think about your attitude to risk. Risk is the chance a product you place your funds with will not give you the outcome you want. Your ability to cope with the changes in the value of your financial products and investments is called risk tolerance. It is important for you to understand how much risk you want to take to achieve your financial goals.

Being aware of your financial goals and your risk tolerance will help you identify what types of financial products are suitable for you and enable you to choose products that you can afford without risking your financial freedom or incurring unwanted debt.

B. Understand the Risks

1. Before placing your funds, always read the terms and conditions and fully understand the risks of each financial product or service.

2. Get to know what is the meaning of basic financial concepts such as compound interest, investment return, time deposit and maturity.

3. Pay attention to the "risk factor" sections or "risk warning" messages. This information should help you assess and decide whether the risks involved are suitable for you. If in doubt, always seek professional advice.

4. Understand the risks and then keep within a level you are comfortable with. For example, when investing, it is impossible to avoid all risks. Higher potential returns usually come with higher risks. Do not invest in an area which carries higher risk than you are prepared to take.

5. Avoid putting all your money into a single product. There is a wide range of financial products such as saving schemes and bank deposits, insurance or takaful products, unit trust funds, stocks and other investment products that offer a range of options to fit different financial objectives. Spread the nest eggs around carefully.

6. It is also advisable to check whether the financial product is eligible for financial protection in the event something goes wrong. For example, deposits placed with PIDM member banks or takaful and insurance benefits offered by PIDM insurer members are eligible for protection in the event the member institution is declared bankrupt. This protection is automatic – you do not have to apply or pay for this protection. PIDM’s website has more information about this protection.

7. Remember the golden rule - “if it sounds too good to be true, it probably is”. There are no shortcuts to achieving financial success and the combination of high returns and low risk does not exist. So, protect yourself from financial scams and get-rich-quick schemes to avoid financial disaster .

Step 3: Know Your Financial Risks

Many of us use financial services every day without anything going wrong. Nevertheless, if problems do arise it helps to know what you can do.

A. Be More Financially Aware

Managing your money

Equip yourself with information about managing your finances so that you can make good financial choices and avoid common money management mistakes. For instance, always ensure that you live within your means. If there is more money going out than there is coming in or you are incurring large debts, you may be digging a financial hole of which you cannot get out of. You can also help yourself avoid bad financial decisions or scams by doing some basic safety checks before you hand over your money.

Your rights and responsibilities

Be aware of your rights and responsibilities when dealing with financial products and financial entities as this may help avoid some common problems before they arise. It is advisable to keep records of your financial transactions and account statements, and where possible document conversations with your financial service provider. That way, you can back up your case with the relevant documents should there be any dispute.

PIDM protection

When selecting financial products offered by banks, takaful or insurance providers, ask about PIDM’s protection. PIDM is the Government agency that protects you against the loss of your bank deposits up to RM250,000 in the unlikely event a member bank is declared bankrupt.

Similarly, PIDM also protects you against the loss of your takaful and insurance benefits up to RM500,000. In the unlikely event an insurer member is declared bankrupt, PIDM will honour the benefit claims covered under your takaful certificates or insurance policies. PIDM protection does not however, include losses resulting from theft, fraud or robbery.

It is important to understand which of your deposits and takaful or insurance benefits are protected by PIDM to enable you to make informed financial decisions.

B. Getting Assistance

If you need help on financial matters, there are many Government agencies and consumer organisations where you can get assistance . Some of these bodies include Bank Negara Malaysia (BNM), Financial Mediation Bureau (FMB), Credit Counselling and Debt Management Agency (Agensi Kaunselling dan Pengurusan Kredit - AKPK), Federation of Malaysian Consumer Associations (FOMCA) and Perbadanan Insurans Deposit Malaysia (PIDM). Get to know the roles and responsibilities of each organisation and how they can provide you with the right information to make informed financial decisions, as well as assist you should you need to address financial-related problems.

Take immediate action if you detect a problem and get help from the appropriate authority to find out your rights and options. If you are a victim of an investment scam or get-rich-quick scheme, do not be embarrassed or afraid to report it to the authorities. Such illegal operations are often so professional and believable that it is hard to tell them apart from genuine financial and investment opportunities. Time is critical and it is important to provide as much detail as you can.

For other practical tips and useful information you may access the following links: